Date: Feb 03, 2016 Author: James Bach Source: bizjournals (
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The last year has seen New York-based L-3 Communications Corp. (NYSE: LLL) undertake a massive portfolio-reshaping initiative to claw at higher margins and refocus its priorities on being an electronics and communications supplier for larger defense and commercial platforms.
The company has been acquiring and divesting at a rapid pace. L-3 acquired Miteq Inc. in Jan. 2015, CTC Aviation Group in May 2015, and ForceX in Oct. 2015. On the other side of the coin, L-3 sold Maritime Systems International, Broadcast Sports Inc., and Tinsley, Klein Associates. Perhaps most notably, it sold its $1 billion National Security Solutions business to Arlington-based CACI International Inc. (NYSE: CACI) in a $550 million deal that closed Monday.
L-3 Communications chief operating officer Chris Kubasik said L-3 probably has "two or three things --relatively small -- that we'll be selling in the next couple months" and that on M&A the company is looking at "four or five" companies at the moment.
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L-3 Communications chief operating officer Chris Kubasik said L-3 probably has "two or... more
At Cowen and Co.'s 37th Annual Aerospace and Defense Conference in New York Wednesday, L-3 suggested that it's not done reshaping its portfolio and will continue to buy and sell new assets as it sees fit.
COO Chris Kubasik said L-3 probably has "two or three things --relatively small -- that we'll be selling in the next couple months" and that on M&A the company is looking at "four or five" companies at the moment.
With little detail beyond that, it's hard to know exactly which product lines or business segments the company will shed, but it can be assumed that the assets have thinner margins and won't be core to L-3's desired business offerings -- intelligence, surveillance & reconnaissance (ISR) systems, pilot training systems, electronic and communications systems, and night vision and sensors.
It's also unclear whether this will have an impact on area contractors in their M&A decisions. The market is not going to see another $1 billion divestiture like it did with the NSS sale to CACI, but there could be a smaller property that attracts companies looking for strategic tuck-in acquisitions likely to dominate dealmaking in the months to come.
L-3 also said it's not anticipating any significant purchases above the $1 billion mark. Its acquisitions in the last year have typically been between $50 million and $100 million, and have had "substantially higher margins" than the businesses that have been sold off, sometimes as much as two or three times the rate, CEO Mike Strianese said.
Higher margins aside, L-3 execs said they would be looking at any acquisitions to supplement their current capabilities. ForceX is a good example of where L-3 will be steering its deals.
L-3 wants to buy proprietary solutions that "upgrade" their existing product offerings. With ForceX, L-3 was primarily buying its software products that work with L-3's Electro-optical (EO) and infrared (IR) sensor systems. The EO/IR sensors detect infrared images and are present on "virtually every manned and unmanned platform out there," Strianese said.
"We already have an install base ready for upgrade," Strianese said.
Strianese also added on the M&A front that "we're seeing more activity, we just have to sort though a lot of little companies and medium-sized companies and the like." He is not interested in public companies because control premiums add to the cost and they are typically "not good deals."
